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BLOG: Give the business more control over IT costs

Martha Heller | Feb. 5, 2014
How Alan Hughes moved from CIO to COO at BCBS of NC

Alan Hughes became CIO of Blue Cross Blue Shield of North Carolina in 2009; three years later, when the company consolidated IT and operations, Hughes was named COO.

The CIO to COO path is an attractive one that not every CIO will travel in his or her career.  How did Hughes do it?

“I have been always viewed as a business leader who has expertise in technology,” he says.  “Not as a technologist who happens to be in a business.”

Most CIOs know that their priorities should be business first, technology second, but many struggle with positioning themselves in that way.  Hughes’ experience at BCBS of NC provides some insights:

Give more control over the IT budget to the business
When Hughes stepped in as CIO, he found that there was a less than perfect relationship between the IT organization and business operations. “There was a lot friction because of a lack of accountability in each group,” he says. “I was able to cut through that friction and built a better partnership by establishing an equal amount of accountability.”

In order to evenly distribute accountability, Hughes focused on costs. “I used an approach that I’ve used many times in the past,” he says. “Business leaders are always looking at their cost structure and at what they can control versus what is allocated to them. I worked hard to understand our cost drivers, and I communicated to the businesses which IT costs were fixed and which were variable.”

By educating the business about the kind of decisions they could make to control their own IT costs, Hughes was able to take some accountability for IT investments out of IT and give it to the business. “This was very empowering to the business,” says Hughes. “Now, they could look at the budget and rather than having to accept huge fixed costs, they could say, ‘Next year I won’t have the revenues to cover these costs, so I choose not to invest in IT in these areas.’”  There were certainly some “keep the lights on” costs that the business could not defer, but now they had control over areas where they had not in the past.

Turn fixed costs into variable costs
After giving ownership over variable costs to the business, Hughes went deeper.  “We looked at what had always been defined as fixed and asked, ‘Where are the variable costs in this category? Can we let the business make decisions about levels of service that will give them more control over their IT budget?’

For example, BCBS of NC had a business continuity plan that dictated that all applications would be available within two hours of going down. “Really?” asked Hughes.  “That’s a major cost to the business. Let’s let them make the decision about which applications require that level of service.” Hughes showed his business partners the difference between what it would cost to have their systems up and running within two hours versus other operational timeframes and asked them to make the decision. “We turned systems uptime from a fixed cost to a variable cost and made it a business decision, not an IT decision,” he says.


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